A Quarterly Wink & a Glance at Venture Capital

February 23, 2018

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In this episode of a “Quarterly Wink & a Glance at Venture Capital,” EisnerAmper Director of Capital Markets Alan Wink gives us the highlights of Q4 and his thoughts on 2017 as a whole. Was it really the year of the unicorn? Finally, Alan looks ahead to the 2018 VC market.

Transcript

Dave Plaskow: Hello and welcome to EisnerAmper’s podcast series. We’re always interested in the latest trends and developments as well as any related business and accounting opportunities and challenges.

Today we’re taking a look at the venture capital landscape for the fourth quarter of 2017. I’m your host Dave Plaskow and with us today is Allen Wink, a Director for EisnerAmper’s Capital Markets. Allen, welcome and thanks for being here.Allen Wink: Thanks Dave.DP: So what were the highlights of Q4 for the VC market?AW: Once again, another really robust quarter that finished really a record breaking year….DP:Ok.AW:…most amount of VC money invested in the United States since the .com era. Really a fabulous year for investors. Maybe a great year for people investing in venture capital, maybe not a great year for seeing exits.DP:Ok.AW:And we’ll certainly talk about that.DP:Yeah, I was going to say, how would you categorize 2017 as a whole?AW:As I said, over $80 billion invested, best year since the .com era began. It really was the year of the mega deal…DP:Ok.AW:…109 deals of at least $100 million. In addition to that there were seven deals of at least $500 million. So really a great year in terms of capital deployment. Also VC’s continue to invest later in a company’s life cycle.DP:Interesting.AW:Only 27% of the dollars invested last year were in seed stage deals. And that was down from about 32% in the prior year.DP:Ok.AW:So VC’s are becoming a little risk adverse themselves – investing later on in a company’s life cycle. DP:Ok. And what were the unicorns doing this year?AW:Incredible year for unicorns. I mean, you could almost classify this as, you know, in addition to the mega deals, really the year of the unicorn.DP:Ok.AW: Unicorn companies as you know are companies with valuations in excess of a million dollars – raised over $19 billion in 2017. DP:Wow.AW:The most of any year on record.DP:Ok.AW:You know, large fundings have certainly led to larger valuations. In 2017 over 40 companies reached the unicorn designation. You know, companies like Peloton and Deliveroo became, you know, unicorn companies for the first time. The other interesting thing about, you know, the unicorn environment, when you look at the value that’s locked up in unicorn companies today the estimates have been in excess of $575 billion. So I think it’ll be very interesting in the future as these unicorn companies seek exits or even participate in IPO activity. DP:Ok. Anything else we need to know about valuations and exits?AW: You know, from an exit…. No, exits are interesting. It was a pretty sluggish year for exits. I think that’s, you know, a good sign of the fact that companies are remaining private longer and they can raise later and later pools of capital. Really it was a continuation of three years of a decline in exits. There are only about 675 venture backed exits last year, down from, you know, over 800 in 2016. You know, the other part of the exit scenario, you know, private equity groups as a whole are sitting on almost $1 trillion of dry powder waiting to be invested.

DP:Ok.AW: And I think you’re seeing private equity firms now become an exit strategy for VC backed companies. There are about $5 billion of exits of VC backed companies last year to private equity groups.DP:Ok.AW:Which is really an interesting dynamic.DP:Yeah. So what are your thoughts for 2018?AW:I think you’re going to continue to see a robust VC market for a number of reasons. VC’s are also sitting on a large amount of capital – estimates are over $120 billion waiting to be invested. So I think you’re going to see continuing investment activity at near record levels. I think there are some concerns over valuations, that, you know, because of the amount of capital out there valuations are continuing to rise. And I think, you know, VC’s are getting a little bit of cold feet around the high valuations – can they make significant, you know, multiples on those valuations in the future? But I also think that the venture capital firms need to continue to show exit activity so they can return capital to the limited partners. So I think you’re going to continue to see a very robust 2018.DP:Ok. Well thanks for this great insight Allen. And we’ll continue to chat throughout 2018.AW:Thanks Dave.DP:And thank you for listening to EisnerAmper’s podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

Mr. Wink assists clients with capital budgeting, capital structuring and capital sourcing. He has worked with many tech and life science companies on developing the appropriate capital structure for their position in the business life cycle.

EisnerAmper LLP is among the nation’s largest full-service advisory and accounting firms. We provide audit, accounting, and tax services, as well as a complete suite of professional advisory services to a broad range of clients across many industries. We work with businesses of all sizes, including more than 200 public companies, as well as with high net worth individuals and family offices. We serve thousands of financial entities spanning the hedge, private equity and venture fund space, along with broker dealers and insurance companies. As companies grow we help them reach their goals every step of the way.